LATAM 2009 Update - Slower Growth and Intense Competition

"Out of suffering comes creativity. You cannot spell painting without pain." John Lithgow in Third Rock From the Sun

Halfway through the first quarter of the year, the outlook for the economy continues to deteriorate with operators and technology vendors facing reduced CAPEX, delayed investments and slower growth rates.

LATINFOCUS (January 2009) expects Latin America to grow at the slowest pace in seven years; industry analysts estimate wireless subscriber growth in 2009 to be between 5% (Yankee Group) and 8% (Moody's), down from double digit growth in previous years (Reinhardt Krause, Investor's Business Daily).

Moody's analyst Nymia Almeida (Reinhardt Krause, Investor's Business Daily) states that operators like America Movil still expect a 10% subscriber growth but with mobile penetration reaching saturation in major markets and slower growth rates this year, the only way they can achieve this is via churn from other operators.

What can operators do in a year of slower growth and intense competition?

The two largest players, America Movil and Telefonica, have been unable to differentiate themselves; their offering is practically identical in the markets where they compete head to head. Pricing might be an option to grab new subscribers but in a year of economic hardship and with subscriber growth coming mainly from lower ARPU segments, price discounts can only get them so far.

We have discussed some options in previous posts (see Finding Opportunities in a year of Economic Uncertainty) that include launching services that leverage existing infrastructure (Voice Mail delivery to MMS, Voice to Text, Call Completion) and services that generate revenue from third parties (Mobile Advertising, Sponsored Ring Back Tones and revenue share LBS and Entertainment).

The core of the issue, however, is facing adversity with innovation and getting serious about the business, something the two big players can learn from Nextel and Millicom, who have successfully positioned themselves in the market and consistently achieve higher customer satisfaction by focusing on their customers, not on the competition.

In summary, 2009 is shaping up to be a challenging year for Latin American operators, with slower growth rates and intense competition. The economic environment will continue to put more pressure on operators and competition will become more intense but this is an opportunity to get back to basics and focus on subscribers instead of trying to catch up with their competition, which has turned into a game of dog chasing tail and running around in circles.